Stock prices of Cirrus logic (NASDAQ: CRUS) are in good form so far in 2024, with gains of 48% as Wall Street grows bullish on the chipmaker’s prospects. The market is excited about a turnaround in the smartphone market, the solid quarterly results and a potential improvement in the fortunes of its largest customer – Apple (NASDAQ: AAPL).
After all, Cirrus is highly dependent on Apple for a large part of its turnover. In the recently concluded fiscal year 2024 (which ended March 30), Apple accounted for a whopping 87% of Cirrus’ revenue. Apple’s share of Cirrus’ sales has increased in recent years. Apple contracts accounted for 83% and 79% of revenue in the previous two fiscal years.
While relying on one customer for so many things isn’t a good thing, a turnaround in Apple’s fortunes related to its artificial intelligence (AI) efforts could be a blessing in disguise for Cirrus Logic. Here’s why.
Cirrus Logic’s largest customer could help accelerate its growth
Cirrus Logic is known for delivering audio codecs, camera controllers, fast-charging chips and haptic solutions to smartphone customers like Apple. The company posted $372 million in revenue in the fourth quarter of fiscal 2024, which was flat year-over-year but crushed Wall Street estimates of $317 million. The company’s non-GAAP (adjusted) earnings jumped an impressive 35% year-over-year to $1.24 per share, nearly double the consensus estimate of $0.64 per share.
Additionally, Cirrus’ forecast of $320 million in current-quarter revenue, at the midpoint of expectations, added to investor bullishness as it beat analysts’ estimate of $302 million. The guidance indicates a slight increase in revenue from the $317 million figure in the same period last year.
So Cirrus’ fortunes are closely tied to Apple. This explains why Cirrus’ top-line growth wasn’t solid last quarter. For example, Apple’s iPhone shipments fell nearly 10% year over year in the first quarter of calendar year 2024, according to market research firm IDC. Sales of iPads and wearables also fell. As a result, Apple’s total revenue fell 4% year over year in the second quarter of fiscal year 2024 (which ended March 30).
The good news for Cirrus Logic is that Apple’s iPhone sales are expected to rise over the course of the year, thanks to the proliferation of AI. Market research firm Counterpoint Research estimates that the AI smartphone market could achieve a compound annual growth rate (CAGR) of 65% through 2027.
While Apple doesn’t have an AI-enabled phone in its portfolio yet (unlike Samsung), the company recently announced a series of AI-related features that are expected to make their way to the next iPhone, which goes on sale later this year. From allowing users to use AI to summarize text to creating original images to transcribing phone calls, Apple has unveiled multiple features that could help it jump on the AI bandwagon.
JPMorgan Analyst Samik Chatterjee believes that the integration of AI-specific features in the 2024 iPhone models is likely to drive a solid upgrade cycle and help Apple sell more smartphones. More specifically, Chatterjee expects Apple to sell 244 million iPhone units in fiscal 2025, which would be a 10% increase over estimated shipments in the current fiscal year. The momentum is expected to continue in fiscal 2026, with estimated shipments of 268 million units.
Furthermore, since the tech giant’s Apple Intelligence platform is only compatible with the iPhone 15 Pro series and iPads and MacBooks with M1 chips, the company could be in for a robust device upgrade cycle. JPMorgan estimates that this new upgrade cycle will be similar to what Apple saw when 5G smartphones arrived, and it’s worth noting that the tech giant’s growth skyrocketed at the time.
Additionally, Apple is expected to release MacBooks with AI-enabled chips this year, allowing the company to tap into another potentially lucrative market. All of this bodes well for Cirrus Logic and explains why analysts have become optimistic about its prospects.
An improvement in growth could lead to more stock upside potential
Cirrus Logic’s fiscal 2024 revenue fell nearly 6% from the prior year to $1.79 billion. However, analysts expect there to be a small improvement for the current fiscal year, as shown in the following chart.
As the chart above shows, analysts have raised their revenue expectations for the next fiscal year, expecting Cirrus to achieve stronger growth. The prospects of AI-enabled smartphones and PCs, and Cirrus’ relationship with a top player like Apple in these markets, should ensure that the company can continue to grow healthily for a long time to come.
That’s why investors would be wise to buy shares of Cirrus Logic while they’re still cheap. The semiconductor stock is currently trading at 26 times earnings, a discount to the Nasdaq-100‘s trailing earnings multiple of 32 (using the index as a benchmark for technology stocks). We saw Cirrus’ earnings grow nicely last quarter, and the company was able to maintain that trend with Apple’s help.
So there’s a good chance that Cirrus can further expand the already impressive profits the company posted in 2024.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool holds and recommends positions in Apple. The Motley Fool recommends Cirrus Logic. The Motley Fool has a disclosure policy.
This Semiconductor Stock Is Up 48% in 2024, and Artificial Intelligence (AI) Could Help It Rise Further was originally published by The Motley Fool
